A fair deal for the young?

Katie Morley of the Financial Times's Pensions Week takes a look at what decisions made by today's politicians mean for your financial future

Katie MorleyApril 2012

4 minute read

The media response to the "granny tax", measures announced in March's budget that will effectively reduce the tax-free allowances available to the over-65s, was so predictable. Popular broadsheet newspapers bulldozed straight in with knee-jerk and sensationalist reactions to what they branded an abhorrent "eat or heat" ultimatum for the elderly. But the situation they portrayed is a distortion of reality. This reform will only affect middle income pensioners who, though begrudgingly, can afford this slight pinch on their spending. There's been considerably less media comment on what the government's financial policies will mean for young people.

Taste the difference

Far from stealing money from the pockets of pensioners, the granny tax was introduced to level out the amount of tax-free income people in our society can receive - making the system fairer for younger generations. Currently, pensioners are entitled to earn more than working people before they have to pay tax, but the government has decided things should be evened out. Why? Because young people today, strangled by an elaborate thread of financial difficulties, are facing a tough economic situation that generations before us have been lucky enough not to have experienced. Student debt. Rising property prices. And soaring unemployment figures. These are the bitter flavours of generational conflict, and, despite the controversy, the granny tax has come as only a small drop in neutralising this bad taste.

Some commentators have argued Osborne's budget paints a far bleaker picture for young people - those with families in particular - than the elderly. But predictably, again, this issue was something on which the press was not quite so vocal. Most notably, the budget did little to address rising unemployment among 20 and 30-somethings - who are the ones the government will rely on to drive economic growth over the next half a century and beyond. And the neglect of this problem is almost as disturbing as Osborne's only proposed lifeline for young people. His Enterprise Loans for 16-24 year olds who want to start their own business frankly offer about as much security as a dinghy that's been sent to save a sinking Titanic. Handing 18-year-olds with zero business or life experience the equivalent of a student loan in cash will, nine out of ten times, end up with government money being sprayed up the wall. Sure it'd be fun for the kids, but I'm less confident the taxpayers funding the show would be so amused.

Talkin' 'bout my generation

We're the first generation in living memory who can expect a lower standard of living than our parents, and leading economists have been keen to point the finger at them and our grandparents for being selfish - taking all the cake for themselves and leaving us to fight for the crumbs. In The Pinch, David Willets condemns the baby boomers as a "selfish generation", and Professor John Kay recently described the phenomenon as "a bizarre paradox of perverse collective action [as] we aggressively pursue our own interests at the expense of our children and grandchildren". Meanwhile, the authors of The Jilted Generation blame the likes of Ed Miliband and George Osborne for doing little in the way of policy-making to alleviate the relative financial hardship experienced by today's youth.

Arguably both our politicians and our elders could do much to improve our finances - the former through creating more youth-centric reforms, and the latter by (to put it bluntly) sharing the goodies. But there's another party who could help us out that slips under the radar all too often - the financial services industry.

Playing FTSE

It's an industry that's simply not as interested in us as it should be, probably because we don't have much money for it to work - and play - with. Some of its attempts at financial help for students, such as Wonga.com's 4,000 per cent payday loan, can only be described as detrimental, and many have branded this kind of "assistance" despicable. The lack of products designed with young people in mind is also worrying. For example, only one FTSE 100 company currently offers its staff a short-term savings vehicle with employer contributions to help its younger employees pay off student loans or save up for a house. And yet the majority offer at least some of their workers a pension scheme. Workplace savings solutions are not designed or marketed with us in mind, which needs to change - and soon. If no action is taken, our generation will sleepwalk into a financial predicament far more serious than that currently being experienced by the victims of Osborne's granny tax.

And this begs the question - is it time for us to get selfish? If so, we should be grateful for small mercies and view measures like the granny tax as progressive.

The Gateway is the independent business and careers newspaper for students. It helps students and graduates improve commercial awareness and gives advice on graduate jobs and internships in investment banking, law, consulting and professional services.